You Need a Channel Strategy – You are not a Unicorn

Regardless of how big you are, start up company or big household name you need a Channel Strategy to reach your full potential. Let me explain…

Why Small and Large Technology Companies Need a Channel Strategy

The evolution of a young fast growing company’s go to market strategy, sales approach is a crucial one. The next steps in their evolution that makes all the difference. Sure the products needs to be relevant. The creators of the company whether pure start up, incubator or spin off based must all face the same market forces. They must either fulfill or create actual need for there to be end user/customer demand. The best technical solution rarely if ever wins on its own merit in the near or long term. Strong sales and marketing organizations are key.  While wins early and often set the tone experience tells us if you don’t look far enough ahead you may break your own head trying to reach a greater scale later.  Perhaps you are a unicorn who will pick all the best direct sales people with all the right relationships to get where your dreams take your company and not need to engage channel partners. Some solutions do need a direct only sales force but those are rare. Exceptionally rare. Odds are you’re not in that category.

What sets the survivors and those who thrive apart is execution. A clear, decisive and integrated sales and marketing plan. More often than not a channel strategy that makes partners, their reach and access to new logos a reality will be needed.

Early Wins to What’s Next

It happens all the time in technology. Companies that are targeting emerging markets or niches in existing ones. Create a solution, maybe truly unique or maybe an improvement on a sub set of something existing. Walk the halls of any show in any tech segment and there are literally thousands of founders and execs selling their vision, enhancement and wares. Some are big names in the hallowed halls of tech and it’s their latest creation. Others are first timers with a dream and a group of sharp ambitious minds.  

Innovation in the purest sense. In both cases they create a new product or even a potential new product segment, solve a known problem or bring to light a nightmare no CIO/CISO ever had lost sleep over of until now.  We sit with their founder and senior executives and talk about how to scale their business. And that’s when it happens…the math doesn’t work. They can’t possibly add enough direct sellers to hit the customer counts that they need.   

There is no passion in the entire world like that of a driven and determined entrepreneur. Founders and innovators who can and go out and sell their solution to the usual suspects. In Tech those usual suspects tend to be the big banks, some global telecom, or media company, maybe an insurance company or two and a handful of government agencies.  

Your Sales Model, Channel Strategy, and the Evolution of Market Share

Foundation customers are essential. Early sales are driven by the founders and in many cases a group of sales professionals who have built great careers on launching new companies into this type of customer. Then they wave those customers logos around on their company slide shows and websites like they are the only ones to sell to those names ever. No criticism, it is how the world works and all businesses need great customers. And if one more person tells me they are special because they have sold a few licenses into a major financial institution I am literally going to puke.  Tell me it’s being deployed to a few thousand branches, or a few dozen hubs for the bank and then maybe I’ll be impressed.

This first lift in revenue and signs of life are absolutely essential. It does give a sense of legitimacy, maybe an analyst or two starts poking around, and a series A or B become real considerations. The next challenge comes when the founders and early sales people need to begin to sell and scale beyond those initial 10 to 15 wins. When peaks and valleys become too obvious and too much rides on a single account or small subset of a vertical.  All too often the early approach isn’t sustainable but the product still needs the evangelical zeal of committed employees who have bet their future and livelihood on the firm. This is where long term vision of who their customers should be and how to reach them should begin to be considered.   

The first of which is if they plan to include some form of channel strategy organization to the mix.   It may not be the right time. However having a few rough thoughts and idea’s on if and how you want to create a channel is a lot easier when you are at $5m and headed to $50m and the sales teams are fresh and open than when you are at 35 and headed to $100m and the only way to profitably scale is by winning end user logos at an accelerated pace. No matter weather you hit the wall at 10 regional sales directors or 50 at some point most companies, even the biggest ones in the world have to go to a channel sales or outsourced sales model.

Channel Strategy to Drive Adoption and Reach

In Technology its clear that bellwethers like Microsoft, Cisco, Palo Alto Networks, HP and others have gone the channel partner route. Even Dell has a channel program.  After all unless you are so huge and special (I”m looking at you google) the only way to reach across every segment of the B2B market your product fits in, without going broke and building a massive potentially ineffective battleship of a a sales force, is to use 3^rd parties to sell shoulder to shoulder with your teams and help drive the business for you. However widening our view it’s not just tech companies who choose a channel sales model. It is just about everyone when you stop and look.  Don’t believe me? Here’s an assortment of “traditional” industry segments all with a channel to get their markets to customers

Traditional Dealer Networks

Perhaps technology companies are Unicorns.  Perhaps their innovation is truly special.  After all it’s hard to imagine the bustling bay area as anything more than it’s own glorious universe. In another era however Detroit was very much the same way for automobiles. Pittsburgh for Steel, Rochester for photography. Before digital camera’s Kodak was untouchable.

Yet the glory days eventually fade.  What hasn’t changed is how household names of both consumer and business products all seemingly evolve to a point where a channel strategy and loyal dealer network that includes sales, services and support

Car Dealers  

A drive though just about any town off any interstate in America makes it clear that car manufacturers from all American Brands though to the German Luxury segment use a channel model to reach the end customer.  It is ripe for disruption and certainly has evolved in recent years with improved transparency in costs and selling prices, the creation of mega dealers with national foot prints and “internet sales departments”.  Here are a few 2018 stats to consider

• The nation’s 16,753 franchised dealers sold 17.22 million light-duty vehicles.
• Dealerships wrote more than 310 million repair orders, with service and parts sales totaling more than $116 billion.
• Dealerships employed more than 1.1 million people

Source: NADA Report

 Yes dealerships have to meet brand standards, hit sales volumes, have to make sure their services departments are profitable, drive incremental revenue, and support both products (cars) they have sold as well as ones they haven’t. It’s indisputable that it is a classic channel play not unlike a lot of tech companies as their channel partners; in this case under the guise of the dealerships are dependent on their chosen brands to build and deliver products that fit the customer’s need.

There has been a consolidation of all small independents to large dominate national players but still there is a mix of regional and even the occasional last bastion of an owner that sells a single line out of a single location. With the exception of the high end luxury segment that is exceptionally rare.

Telecommunication Companies – Hybrid of Direct Sales and Channel Partners

This one could have volumes written about it. So in the interest of keeping it simple we’ll use Verizon’s Wireless Business as the starting point.

“Verizon Wireless authorized retailers earn commission, co-op accruals and account maintenance fees for the activation of customers on Verizon Wireless calling plans according to their agency agreements.

Verizon Wireless performs all billing, collections and customer service for the Verizon Wireless customers activated by the authorized retailer.

Authorized retailers identify themselves as authorized retailers of Verizon Wireless and use Verizon Wireless trademarks in accordance with their agency agreement.

The Verizon Wireless indirect channel’s vision is to have strategic alliances with authorized retailers by having a finite number of locations that are strategically placed within the market place.” ~ What is an Authorized Retailer?

An authorized network of partners and channel strategy is massively important to them.  All the consumer advertising in the world is worthless if you don’t have places to sell your products to the people who want them. AT&T has more than 16,000 stores, 2,200 that they own and operate. The balance are made up of retail outlets including national brands like BestBuy, Walmart, and Costco not to mention Mall Kiosks and independent store operators. Source

 Sprint runs more than 4,500 branded stores all the way back in 2015

And T Mobile’s CEO  John Legere says it best

“By year end, we will have nearly 17,000 branded locations across the country, where customers can buy T-Mobile or MetroPCS, and that’s just incredible. So, putting all this together, the new spectrum and the work we are doing with our current spectrum set the stage for continued momentum in future growth for T-Mobile.”

I know I know these are retail channels serving hundreds of millions of US customers.  And that is exactly right but here are 5 things to consider

1. The carriers themselves are a channel partner for the cell phone manufacturers
2. These companies know and recognize the power of the channel, they may not have a pure channel model but they do leverage it where it makes economic as well as ‘go to market’ sense
3.  We’ve not yet begun to talk about any of their thousands of “agents” who sell their old school circuits, phone lines, and data pipes to commercial customers from small to massive.  It is easily a billion plus business.
4. Telecoms are now media companies – Direct TV Anyone? Yet another set of models
5.  Each and every one of the Major companies still chooses to “go direct” to key customer segments.  Large corporations, Federal, State and institutional customers. They know they can’t serve the full enterprise market alone let alone the small and mid market customers.

Heavy Machinery – Channel Partners, Diversification, and Financial Services

John Deere and Caterpillar are two names almost everyone in the US will recognize. At their core their business is selling monstrous often special purpose machines that are anything but inexpensive. Cat had $54b in 2018 revenue. Deere recorded $39b in fiscal 2019. A more interesting stat however is that their Financial services group reported net income attributable to Deere & Company of $261.4 million for the quarter and $942.0 million for the full 2018 fiscal year. Not unlike the automobile industry financing is a key component that has been built into their channel partner eco-system.      

Both companies have been threatened by domestic as well as foreign rivals. Both have diversified into other adjacent segments (construction for farming for example).  Again not unlike automobile dealerships they depend on service and maintenance as part of their channel partner’s business models.   

Heating and Air Conditioning – Dealers and Services

Every homes and business has a heater, an air conditioner or both. Much like well established technology companies the HVAC world has used a channel partner strategy to expand their reach.   Lennox has more than 6,000 independent dealers focused on and selling their wares.

Not to be outdone their rival Trane has an extensive dealer network. A separation between residential and commercial channel partners. They also have marketed directly to buying customers to feed that network, included programs and recurring revenue service options as part of their channel partner’s business model.

Quick Facts: Heating, Air Conditioning, and Refrigeration Mechanics and Installers
2018 Median Pay	$47,610 per year $22.89 per hour
Typical Entry-Level Education	Postsecondary nondegree award
Work Experience in a Related Occupation	None
On-the-job Training	Long-term on-the-job training
Number of Jobs, 2018	367,900
Job Outlook, 2018-28	13% (Much faster than average)
Employment Change, 2018-28	46,300

Source: BLS.Gov

Even in the commercial space there are specialists they rely on to drive the market, tools, and technology for their partners who are “on the go” to make them more effective and efficient.  

Considerations When Developing a Channel Model

There are infinite considerations.  Entire consulting engagements can still fail to answer this question. More than one CRO or EVP of Sales has gotten wrapped around the axle on the topic in board meetings and planning sessions. Start with a few simple questions

Customers first, sales model second

1. Who are our customers today
2. Who do I want as our customers to be tomorrow

The answer to how to approach building a channel partner is understanding who your early and mid stage customers are and then who you want them to be next.  Customer segmentation either by size. Meaning the age old Small, Medium, Enterprise, Fortune whatever. Really is the first step. It not only tells you if but potentially how many and even who you need.  

Who are the Right Channel Partners to recruit.     

Going back to picking on tech companies.  Everyone signs the same 13 national players, tries to add the same 5 Telecom Companies and DMRs.  Odds are we all have good friends at each and every one of these. They can be high volume, but are pay to play and there needs to be a non stop engagement across the organization to keep their attention and remain relevant.

What is your channel strategy for creating a partner network?

A good friend of mine seems to specialize in leading early stage (post series A or B) companies sales teams. During one such adventure he admitted that they “Had to go all in” at a major IT Security show to seem relevant and viable.  With 600 other companies there and roughly 100 or so being well established it was the upstarts who were clamoring for attention.

With all of that in your back pocket do you still think you’re a unicorn? That the only way to reach the market is through a direct sales organization?   So really the final questions…

1. When are you gong to establish a network of sellers not on your payroll?
2. How are you going to recruit, onboard, train and enable them to carrying a bag on your behalf?
3. Which segments of customers, when and how will they be working alongside your own sellers?